A Model of Optimal Human-Capital Accumulation and the Wages of Young High School Graduates

Abstract

This paper estimates the parameters of Ben-Porath's model of optimal accumulation of human capital over the life cycle. A discrete-time version of the model is presented, and previous estimates of its parameters are considered. Using longitudinal data on wages of young white high school graduates, these parameters are reestimated. The point estimates of the two key parameters (the discount rate and the elasticity of investment costs with respect to investments) are implausible on a priori grounds, confirming the essentially negative conclusions of earlier studies.